Research Interest
  • Open Macroeconomics, International Finance, Macroeconomics, Applied Econometrics
    • Capital controls, Macroprudential policies
    • Exchange rate determination
    • Purchasing Power Parity Puzzle
  • International Trade
    • Infant Industry

Working Papers
  • "Capital Controls and Foreign Exchange Market Intervention"  Download / View

    Small open economy models based on the classical trilemma are unable to explain coexistence of capital controls and volatile exchange rates in developing countries. The paper presents a New Keynesian small open economy model, where a policymaker finds the optimal international monetary policy portfolio of exchange rate regimes, capital controls, and domestic interest rates. The paper introduces policy-endogenous risk premium shock, which creates financial frictions; breaking exchange rate peg signals the country's economic instability and financial sector responds by raising the country's risk premium. Contrary to the classical theory, the results suggest that implementing both capital controls and managed float can be optimal, while domestic monetary policy is under controls.


  • "Revisiting PPP Puzzle: Nominal Exchange Rate Rigidity and Region of Inaction" 
    with Seongho Song

    Even though real exchange rates may converge to parity in the long run, the consensus emerging from an extensive literature appears to be that the rate of mean-reversion is slow. Rogoff (1996) talks of a consensus view of a half-life between 3-5 years; however, this is much too long to be compatible with arbitrage - hence, Rogoff argues, the "PPP puzzle." This paper first proposes that investigating the periods of de facto floating regime will explain seemingly unrealistic persistence in real exchange rates by presenting lower persistence in real exchange rates than the estimates of previous studies, which include the periods de facto fixed regime in their data set by using de jure regimes. Secondly, previous studies have included the periods when real exchange rates that are already close to the mean; because the trend of mean-reversion rates is non-linear, including the periods when real exchange rates are already converged to their means will bias the estimates toward zero, which are translated to the slow mean-reversion in real exchange rate estimates. Therefore, unbiased mean-reversion estimates can be estimated if I investigate the periods when the sample countries are under de facto float regimes and the periods when real exchange rates are statistically far from their means. Studying the data of nineteen goods CPI for eleven countries confirms these propositions. The MG estimation decreases the half-life by 28.26% (half-life of 23.14 months) compared to fixed-effects estimation. The exchange rates regime dummy decreases the half-life estimate to 19.81 months and the already-stable dummy decreases the estimates to 15.22-20.54 months. Using both dummy variables elicits the results that make the puzzle less puzzling; the half-life estimates are 9.30-13.89 months.

  • "Cost of Floating Exchange Rates: Should we fear to float?"

    The paper explores the exchange rate regime-elastic risk premium quantitatively. This paper takes foreign investor’s perspective and studies how the trend of risk premium changes when the regime switches in ten emerging market economies through the event study framework. Using a daily data set, the events of de facto regime switching are identified following the comparable methodology used in Calvo and Reinhart (2002), and EMBI+ is used as a proxy for country risk. The results confirm that switching exchange rate regimes from fixed to floating incurs an abrupt increase in average risk premium. EMBI+ rises by 141.11 - 165.48 basis points (0.257 - 0.525 standard deviations) around the events and shows 205.72 - 340.30 basis points of 40-day average difference before and after the events. The abnormal return estimates during the events range from 0.0036 to 0.0075, which imply 8.31 - 225.85% increase in the returns of EMBI+ during the periods of breaking pegs.


Work in Progress
  • "Exchange Rate Determination in the Three-country Model"
  • "Market Liquidity and International Financial Crises" with David Munro
  • "Investigation of Uncovered Interest Parity during Zero-Lower-Bound Periods" with David Munro
  • "Estimation of Region of Inaction" with David Munro and Seongho Song


Awards / Grants
  • CBRT 2017 Research Awards (3rd place)
    • Central Bank of the Republic of Turkey (2017)
  • Summer Research Grants
    • Department of Economics, Xavier University (2018 and 2019)